Delaware's hidden litigation funders threaten corporate trust

Delaware exodus accelerates after court ruling

Vice Chancellor Travis Laster's decision in the Cloudflare case prompted corporate flight from Delaware. Virtu Financial announced its relocation from Delaware to Texas on November four, following at least thirty company exits over two years.

Companies cite unpredictability and judicial overreach

Boards leaving Delaware cite the same concern: they can no longer predict how the Chancery Court, once prized for consistency, will treat them amid decisions widely construed as judicial overreach.

A second blind spot gets less attention

A Delaware company can be sued in Chancery Court with no way of knowing who is paying for the lawsuit, whether that backer controls settlement, or whether it is a competitor or foreign state.

Justice requires transparency and openness

Legal philosopher Jeremy Bentham wrote that publicity is the very soul of justice.American courts function in the open with public proceedings and disclosure requirements designed to ensure judges and litigants understand who drives a case.

“publicity is the very soul of justice”

Litigation finance market has exploded

The global litigation finance market was estimated at twenty point six billion dollars in twenty twenty-five, with forecasts it will more than double over the next decade.U.S.

Original purpose has become perverted

At its best, litigation funding expands access to justice for plaintiffs who could not otherwise afford to be heard.

Funders can resist settlement and prolong disputes

An outside litigation funder's investment return thresholds can push it to resist settlement and prolong disputes at real cost to litigants and judicial resources. Funders may not be motivated by financial profit at all.

Foreign funding poses national security risks

An undisclosed entity can underwrite suits to impose costs on a competitor, and when money answers to a foreign state, the concern becomes national security.

Chinese firm financed patent suits against Samsung

A Shenzhen-based firm led by the general counsel of Chinese electronics giant TCL was revealed to be financing patent suits against Samsung in U.S.courts.

Discovery costs magnify the danger

Discovery is estimated to account for fifty percent to ninety percent of litigation costs. A funded plaintiff can run up a defendant's bill as an end in itself or operationally hinder a competitor by requesting…

Patent litigation shows the pattern at scale

Patent cases absorbed thirty-two percent of new litigation-funding commitments in twenty twenty-four, up from nineteen percent a year earlier.

Delaware federal court proved disclosure works

In April twenty twenty-two, Chief Judge Colm Connolly ordered parties to disclose any litigation funder and whether it controls litigation or settlement decisions.

Chancery Court remains the gap

Delaware's Superior Court amended its rules on September thirty, twenty twenty-six to permit discovery into a funder's existence, identity, and control rights.

States and Congress are moving ahead

Ohio enacted a law in July requiring funders to register and disclose agreements, barring them from influencing settlement.North Carolina on June twenty-two became the first state to prohibit third-party litigation investment altogether.

Disclosure is the remedy Delaware needs

Delaware should adopt a Chancery rule modeled on Chief Judge Connolly's order, requiring parties at the outset to disclose whether a funder exists, who it is, and whether it controls strategy or settlement.

“sunlight is said to be the best of disinfectants”